CPI Preview: March Rate Cut Bets Grow but Fed’s Battle Still Looks Far From Over
With investors now firmly expecting the Federal Reserve to start cutting interest rates at some point this spring, Thursday’s CPI inflation report will likely be key in determining the U.S. central bank’s policy moves in the first half of 2024.
As per Investing.com, the monthly consumer price index is forecast to rise 0.2% in December after inching up 0.1% in November.
Meanwhile, the headline annual inflation rate is seen rising 3.2%, accelerating from a 3.1% annual pace in the previous month.
A cooler than expected print, which sees the headline figure fall to 3% or below, would likely add to the rate-cut buzz, while a surprisingly strong reading could keep pressure on the Fed to maintain its fight against inflation.
As seen in the chart below, U.S. inflation has come down noticeably since the summer of 2022, when it peaked at a 40-year high of 9.1%, amid the Fed’s aggressive rate-hiking cycle.
Nonetheless, while the rate of inflation is declining, prices are still rising far more quickly than what the Fed would consider consistent with its 2% target range.
Meanwhile, the December core CPI index — which does not include food and energy prices — is expected to rise 0.3% on the month, matching the same increase in November.
Estimates for the year-on-year figure call for a 3.8% gain, slowing from the previous month’s 4.0% reading. If confirmed, that would mark the lowest annual core CPI reading since May 2021.
The core figure is closely watched by Fed officials who believe that it provides a more accurate assessment of the future direction of inflation.
Fed chair Jerome Powell acknowledged last month that further rate hikes are unlikely as inflation falls faster than expected, and the time for rate cuts is drawing closer.
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